How to Change Your Mortgage Lender: Should You?

Written by Haley HarrisonUpdated: 12th Mar 2022
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Did you know that you can change lenders before you’ve paid off your mortgage? Or that you can change lenders before closing on a purchase?

In both cases, this can save you some hard-earned dollars. But before you make the switch, be sure you understand the ins and outs of changing mortgage lenders to ensure you’re making the best decision for your situation.

Can You Change Mortgage Lenders?

The straight answer: yes. You are under no obligation to stay with your lender. Before a loan is finalized, you can walk away from your current mortgage lender at any point in the process. While this may come with serious consequences, such as delaying closing, you can do so.

However, once a loan has already been issued, it’s not as simple as requesting to transfer your mortgage to someone else. You’ll need to refinance to pay off your current loan with a new one.

>> More: Best Mortgage Refinance Lenders

How to Switch to a New Mortgage Lender (Step-by-Step)

#1. Understand “Why” You Are Switching Lenders

Before getting into the ‘how,’ we need to establish the ‘why.’ Your ‘why’ will guide your decisions as you move forward, so it’s essential to have a clear end goal.

Are you switching lenders to get a lower interest rate? Are you unhappy with the customer service you’ve received? Can you get lower closing costselsewhere?

>> More: How to Refinance Your Mortgage

#2. Shop Around and Compare Lenders

You’ve decided to make the switch, but now what? Before jumping in headfirst with another lender, make sure you’ve shopped around and compared quotes. Reach out to 4-5 lenders and ask for information on closing costs, timeline, and the approval process.

Are they willing to waive certain closing fees? Is the lender approved to work with special loan programs like FHA or VA loans? For refinances, do they require a new home appraisal?

These are all important questions to ask and should help you narrow your choices as you move forward.

#3. Request Preapproval

If you’re a buyer, this is especially important for you. In a market that so heavily favors sellers, a preapproval letter is much less a golden ticket than a requirement to even get in the door. Preapproval letters will show you how much you qualify for and provide you with rate information. Sellers only want to work with buyers whose financing is less likely to fall through. A preapproval letter shows them you’re serious and you’ve done what’s necessary to prepare for a smooth closing.

Note: The mortgage preapproval process requires lenders to run a check on your credit score. This can temporarily lower your score, but it is an essential part of the home buying process.

#4. Tell the Seller Why You Changed Mortgage Lenders

Once you’ve made your final decision about switching mortgage lenders, you need to let the seller side know. Why? Because they want to be kept in the loop about what is happening leading up to closing. Will the change in lenders affect the closing date? This is essential information they need to know.

Even if the switch doesn’t affect the closing date, it’s in your best interest to maintain transparency at all times. What could not be a big deal at all could come off as you trying to make changes under their noses.

In addition to notifying the sellers, you’ll also need to let the title companyknow. Leading up to the closing, the title company works hand in hand with your lender to gather the necessary documentation and coordinate. If you change lenders, they’ll have to restart this process with the new lender.

What Are the Advantages of Changing Mortgage Lenders?

If you’re going through the hassle of changing lenders, make sure you’re doing so for a good reason. Here are a few ways changing mortgage lenders could work to your advantage.

Better Rates

A lower interest rate is always the goal. Some lenders may have access to lower rates than your current lender. Different lenders have different lending requirements, meaning that you are not necessarily stuck with the mortgage rate you have now. Again, make sure you’re shopping around and asking for quotes to see who can offer you the lowest rate. Whether you’re refinancing or purchasing, you’ll be glad you did when you see your monthly mortgage rate drop.

Potentially (Lower) Closing Costs

No matter where you go, you will need to pay closing costs. This will be between 2 and 5 percent of the loan amount for refinances. For purchases, this can be between 3 and 6 percent. Every lender charges different fees, and some closing costs are even negotiable.

While it’s important to do your homework to get the best deal with closing costs, make sure to consider the bigger picture. For example, one lender may have closing costs that are $1,000 less than another lender, but if the other lender offers a significantly lower interest rate, you’re better off paying the extra $1,000 and saving more money in the long run.

If you’re refinancing, you might ask your current lender what they can do for you in terms of closing costs. It may be worth it for them to knock off a few fees and keep you as a customer. You’ll never know if you don’t ask!

Better Customer Service

While we all care about saving money at the end of the day, customer service is still an important factor. Is your loan officer answering all of your questions? Are they prompt, in reason, with their responses? Do they keep you in the loop and tell you upfront how things are looking? Are they honest?

Taking out a mortgage loan is a huge commitment, so you want to know that you can trust the people you’re working with. Less than ideal customer service alone may not make you switch lenders if you’re getting a great deal, but it is a contributing factor when you could be looking elsewhere.

What Are the Disadvantages of Switching Mortgage Lenders?

As with anything, switching lenders isn’t just full of money-saving benefits. This is an important decision that involves several moving pieces. Before you switch, make sure you consider the following.

Time Consuming

Remember when you first went to take out a loan and had to spend all that time getting your paperwork together? You’ll be doing this again. Your new lender may require more or less paperwork than your current lender, but regardless there are some universal documents that every lender will need to see. Before you get to this point, you’ll need to spend time researching lenders, asking for quotes, and getting letters of preapproval. Saving money every month might be worth it but expect to spend some precious time getting there.

Another Credit Check

When you go with a new lender, they’ll need to run a new credit check on you. If they use a hard inquiry, your credit score will negatively be affected in the short term. This means that your mortgage costs might go up for every lender you get preapproval with. You may cast a wide net when you begin shopping around, but it’s important to be increasingly selective as you move forward.

>> More: What Credit Score Is Needed to Buy a House?

New Home Appraisal

Home appraisals tell the lender about the property’s value compared to similar homes in the area. They use the appraisal to ensure the amount they are lending for the property matches its real value. Unless you are qualified for a special loan program, such as a VA loan or FHA loan, you can expect to pay for a new appraisal with every new lender. Depending on your area, appraisals typically run between $300-400.

>> More: What Government Home Loan Options Are Available?

Can You Change Mortgage Lenders after Closing?

Yes, but you will have to do so through refinancing. For most borrowers, there is no required waiting period to refinance unless you’re going to cash-out refinance. In that case, you’ll need to wait six months. Even if you’re not cashing out, your lender may require you to wait six months, but you’re free to refinance with another lender.

Keep in mind every refinance comes with closing costs and additional work.

>> More: Best Cash-Out Refinance Lenders

Is It Bad to Switch Mortgage Lenders?

Not necessarily. Switching mortgage lenders can get you a better deal, and that’s always a good thing. The important thing is to make sure you are actually getting a better deal. You can do this by comparing quotes and asking questions about the delivery and timeline. As a buyer, the last thing you want is to lose out on a deal because you went with a different lender that couldn’t close on time.

Switching lenders could be great if you’ve done your due diligence to ensure it works in your best interest.

Is It Easy to Switch Mortgage Lenders?

The process to switch lenders is relatively easy, but it will vary with every person. For example, are you too close to closing to switch? Do you meet all the qualifying requirements for a new lender? Will you have to provide additional documentation?

These are all questions that will depend on your unique situation and determine whether it’s a feasible option for you.

Can You Switch Mortgage Lenders during Underwriting?

You can switch mortgage lenders at any point until you sign at the closing table. This includes during the mortgage underwriting process. However, it’s important to note that doing so could have serious consequences such as delaying the closing. Starting over with a new lender means starting over with collecting documents and getting through their approval process. Each lender has a different underwriting process, which is often not something that can be rushed.

If you’re in this situation, you need to consider whether it would be in your best interest to move forward with your current lender and refinance after the fact.

Bottom Line: How to Change Mortgage Lenders

If you are looking to find a better rate, whether you’re purchasing a home or looking to refinance, changing mortgage lenders could work to your benefit.

Making the switch could save you money by lowering your interest rate and closing costs. But before you make the decision, be sure you’ve done your due diligence to ensure you’re making a beneficial decision for your situation.

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Haley Harrison
Haley Harrison

Haley is an experienced writer and has worked for several years on the title side of the real estate world. Through her work, she helps educate homebuyers on the ways they can prepare for homeownership. When she is not writing or getting buyers and sellers to the closing table, Haley enjoys travelling, studying personal finance, and being at home with her dog. She attended the University of Cincinnati majoring in International Relations, and holds a M.A. in Bilingual Education from Universidad de Alcalá. Haley’s areas of expertise spans mortgages, real estate, and loans.